A beginner’s guide to gold investment: ₹100 to start with

Gold deserves a place in your portfolio, but it isn’t the most straightforward of investments

- Jash Kniplani

Gold, traditionally seen as a safeguard, has delivered returns of about 50% over the past year, while equities and other asset classes have struggled to deliver. Many investors are now viewing the precious metal not just as a hedge against uncertainty but as a genuine alternative asset class.

Yes, gold is a key asset but not for what it can do in the short-term. Its true benefit is the stability it can bring to a portfolio over the long term. Gold deserves a place in your portfolio, but it isn’t the most straightforward of investments.

Thankfully, the mutual fund universe offers several attractive ways for investors to gain exposure to gold.

Units of gold exchange traded funds (ETFs) can be easily bought and sold on the stock exchanges for as little as ₹100. Gold ETFs are linked to the price of gold, and each unit is pegged to a certain quantity of the metal. For instance, Nippon India ETF Gold BeES currently trades at ₹94 per unit as each unit is pegged to 0.01 gram of gold.

These ETFs invest in gold with the highest purity. The Securities and Exchange Board of India requires them to buy gold as per the standards of the London Bullion Market Association, which mandate a purity of at least 99.5%. Fund houses appoint custodians to handle the physical gold, and they in turn appoint a vaulting agency to store the gold in vaults. But to invest in a gold ETF, you need a demat account. If you don’t have one, a gold fund of funds (FoF) may be a better option.

Gold FoFs invest in gold ETFs, allowing investors who don’t have a demat account to gain exposure. These are structured like a mutual fund. Another advantage is that they allow for systematic investment plans (SIPs). By setting up a SIP in a gold FoF, investors can gradually build exposure, reducing the risk of mistiming the market.